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The Collapse of Black Wealth

Jesse Lenz

When Joe Parker was a young, newly married public-school administrator who wanted to buy a home in 1974, he didn’t even think about leaving Prince George’s County, Maryland. It was where he and his parents had grown up. But when Parker first tried to bid on a house in a new development in Mitchellville, a small farming community that was sprouting ranch and split-level homes on old plantation lands, the real-estate agent demurred, claiming there were other buyers. In truth, the development had been built to lure white, middle-class families to the county, which sits just east of Washington, D.C. Parker never told the agent that he served on a new county commission to enforce laws forbidding housing discrimination. He just persisted, he says, until he and his wife were able to bid. “My wife kept saying, ‘Why don’t you tell him?’” Parker recalls, but he refused to pull rank. “I said no, because what does the next black man do?”

The next black families did arrive. Throughout the 1980s, 1990s, and 2000s, most of the professionals who bought homes in Prince George’s County came from Washington’s black middle class. Laws that expanded minority homeownership, combined with a booming mortgage market, brought more and more black residents out to the suburbs. When Parker bought his home in the ’70s, African Americans made up about 14 percent of the population in Prince George’s County; by 2010, the share of black families would be almost 65 percent. Across the country, in the final decades of the 20th century, minorities were moving into suburbs in unprecedented numbers. But Prince George’s County was distinct: It was one of the few places—like Southfield, Michigan, outside of Detroit; Warrensville Heights, Ohio, outside of Cleveland; and DeKalb County, Georgia, outside of Atlanta—that grew wealthier as it became blacker. Median income in Prince George’s outpaced the national median from the 1970 census forward.

Prince George’s County today is a collection of cities, small towns, and bedroom communities with a population of about 870,000. Home-improvement stores and shopping centers pepper broad boulevards; McMansion-filled subdivisions end in cul-de-sacs. With a median income of $71,260, it’s wealthier than the state as a whole. There are Outback Steakhouses and Whole Foods markets. There are fall festivals, international festivals, and food festivals. There are pumpkin patches and Christmas-tree farms. Bowie, in the northern part of the county, is home to Bowie State University, a liberal-arts college that once trained black teachers as the Maryland Normal and Industrial School at Bowie. Joe Parker, now retired from the school system, serves as a neighborhood captain to welcome families into the development he bought into almost 40 years ago and is a neighborhood historian. His three sons still live in Prince George’s County. It’s home.

Prince George’s County became emblematic of a long-delayed advance toward equality: the growth of black wealth in America. For three centuries, structural racism had prevented black families from building wealth. School systems, hiring practices, red-lining, and discriminatory lending practices all combined to deny the opportunities that white Americans, whether immigrant or native born, saw as their birthright. In the South, especially, there were more direct means of holding back black economic advancement: Violence was often directed toward black men and women who owned businesses or farms and toward those who fought for their right to work for fair wages. But in the 1980s, helped by laws that encouraged homeownership among minorities, African American families were at last able not only to earn higher incomes but to buy homes and build wealth.

Just from 1995 to 2004, black homeownership rates nationwide rose 6.5 percentage points, reaching a height of 49 percent in 2005. But those gains were almost entirely erased as the Great Recession began in 2008, with black homeownership rates dipping to 45 percent last year and continuing to fall. Nowhere is that more dramatically illustrated than in the stretch of suburbia that straddles the Beltway. At the height of the crisis, in 2009, the foreclosure rate in Prince George’s County was 4.19 percent, compared to 1.87 percent in Maryland and 2.21 percent in the nation as a whole.

Even families who aren’t losing their homes have seen values drop, making it more difficult to get loans to finance their children’s education or their retirement. Mosi Harrington, the former executive director of the Housing Initiative Partnership, a Maryland nonprofit that helps people hold on to their homes, says declining home prices are particularly problematic for African Americans because they have inherited less than their white counterparts. “In your minority communities, wealth is not very deep,” she says. “There’s no family wealth to fall back on in hard times.” Most middle-class families hold all of their wealth in their homes, and that’s especially true for the median black family—the amount they hold in stocks is zero. That means the housing crisis has wiped out an entire generation of black wealth.

In general, African American families have few resources to tap for big-ticket items like college that are necessary for their children to remain middle-class. The gap between middle--class families and the top 1 percent is huge regardless of race, but the racial gaps are even larger. According to the Economic Policy Institute’s State of Working America report, black households had a median net wealth of just $4,900 in 2010, compared with $97,000 for white households. A third of black households had zero or negative wealth.

“There’s been a lot of attention brought to how much income inequality we’ve seen in this country, thanks to Occupy Wall Street,” says Heidi Shierholz, an economist with the Economic Policy Institute. “I think people kind of have a handle on the dramatic income inequality we have. But wealth inequality swamps anything we see in income equality.”

The story of Prince George’s County is, in many ways, the economic history of black Americans writ large. While its post–civil rights boom was a heartening sign of the slow but hopeful rise of a durable black middle class, its sharp downturn during the Great Recession is one more sign that the arc of history has yet to bend in the direction of economic equality or justice.

The first black families in Prince George’s County were slaves and indentured servants brought there by Southern planters who had settled in the swampy lowland, primarily to grow tobacco. The county, named for the Prince of Denmark who was married to England’s Queen Anne, is about 500 square miles in the middle of what was then a colony, which was itself between what would become the Union and the Confederacy. Maryland passed its first laws to define slaves in the 1660s. A few black men bought their freedom by fighting in the Revolutionary War, but the vast majority of blacks in the state and in Prince George’s County remained slaves through the antebellum period: In 1850, there were more than 11,000 slaves, the highest of any Maryland county, 1,138 freed blacks, and only 8,901 whites.

Maryland slaves weren’t freed by the Emancipation Proclamation in 1863—it applied only to states in open rebellion, and Maryland didn’t secede during the Civil War. They had to wait until a new state constitution went into effect in 1865. Some were then able to buy land in Prince George’s County. Josiah Adams, who was born in 1817 most likely as a slave, pieced together, from 1871 to 1883, parcels of county land, amassing 48 acres by the time of his death in 1884. He passed that land on to his descendants, who lived in the area through the 1950s. Most of the African Americans who stayed in Prince George’s remained as tenant farmers, tied to the farms where they had been slaves, meaning they were still financially, if not legally, bound to white landowners.

The first few decades of the 1900s brought a wave of middle-class African Americans who were able to buy homes on lands carved out specifically to create black communities. The first two black towns, North Brentwood and Fairmount Heights, were incorporated in the 1930s. They became suburban homes for graduates of the Tuskegee Institute who came to work in federal agencies and other regional industries. In nearby D.C., Howard University, established in 1867, brought black educators to the county. More black families moved into these towns and started small businesses to serve the growing communities. Joe Parker’s parents had grown up in the farming areas around the wealthy town of Upper Marlboro but moved to Fairmount Heights and operated a tavern and delicatessen in the 1930s. In 1950, the county’s black population was 22,652 out of 194,182.

The county wasn’t free of the violence that plagued black families throughout the South and Midwest, either. Locals can still point to a bridge in Upper Marlboro where lynchings were carried out. Until the 1970s, Prince George’s County remained a tight hierarchy with whites at the top, which meant that black families were relegated to buying homes in areas only where the white majority allowed them to do so. That prevented black families from buying homes in the priciest neighborhoods, like Bowie, and also set a cap on the housing stock that would be available for new black homebuyers.

When civil-rights laws in the 1960s opened up new opportunities for African Americans, Prince George’s County had a critical mass of black professionals and business owners on which to build. Parker and his peers fought to increase the number of African Americans in county-level government and to enforce federal and state laws to open access to homeownership opportunities. “I felt this was home,” he says. “With all the problems here,” he remembers thinking, “this place needs me here to help right the ship.”

When middle-class Washington blacks began looking to the suburbs, especially after the 1968 riots, Prince George’s County was a logical destination. The stable government jobs, both at the federal level and in municipalities around the region, kept pumping in middle-class black families. They were helped by the Community Reinvestment Act of 1977, which prohibited lending discrimination among low-income communities and communities of color. The county also remained affordable, especially relative to richer D.C. suburbs in Virginia and elsewhere in Maryland.

For the first time since slavery, the county in 1990 became majority black. Because black professionals were mostly displacing rural and working-class whites, Prince George’s also became the wealthiest majority-black county in the nation. The rise of black suburbs like Prince George’s County was largely seen as a self-directed, community-affirming choice, rather than a result of segregation. While there was some resistance from white residents, some white flight to other suburbs, and some reluctance to enter the county by commercial developers, such tension played less of a role in Prince George’s than it did in other communities around the country. “One of the things that happened is, because of earlier waves, as more people came, there was a critical mass,” says Bill Sermons, research director with the Center for Responsible Lending, who grew up in the county after his family moved there in the 1980s. “You didn’t have part of the story you had in other urban communities across the country,” where black families would disperse and try to integrate white communities alone.

In 1993, President Bill Clinton strengthened the Community Reinvestment Act. The number of black families who owned their own homes rose from 42 percent to 46 percent nationwide. But near the end of his second term, in 1999, he signed another law that would have a profound, long-lasting effect on Prince George’s County. The Gramm-Leach-Bliley Act allowed lending banks and investment banks to operate under one roof. The credit market boomed, and new lending products proliferated. While the families living in Prince George’s County may not have been discriminated against in their personal lives, they were still not free of discrimination when it came to buying homes. Black families were disproportionately receiving mortgages and home-equity loans best described by a word that wouldn’t enter the lexicon for another decade: “subprime.”

Predatory brokers flooded markets like Prince George’s County. “You had a lot of people there who were prime targets,” Sermons says. “You had networks of brokers and others who were targeting communities and working through churches and doing other kinds of things to find the kind of people they could put into these mortgages.”

The families hardest hit were those who bought at the height of the 2000 housing boom and lost their incomes during the Great Recession that followed. But it isn’t just the families who face foreclosure—429 so far in 2012 alone—that were affected by the collapse. First-time homebuyers had taken out mortgages for expensive homes, and many families, who saw the values of the homes they’d owned for decades skyrocket, borrowed against their houses. All those homes bought or refinanced at the height of the bubble, when home prices were unrealistically high, means that families who still have their jobs and enough income to ride out the crisis have nonetheless seen a huge drop in the wealth that they had worked their whole lives to build.

Today in Prince George’s County, “the typical client has a mortgage of $300,000, and their house is worth $150,000,” says Mary Hunter, a counselor with the Housing Initiative Partnership. “That’s a huge problem, the fact that so many homes are underwater. There’s no real solution. So many people here are underwater.”

Comments

As I read through this I kept thinking, "So when will this be specifically about black people?". It never really is. Everything written here could be said about any other section of the country, especially ones which 'catered' to first time homebuyers who are notoriously vulnerable to getting in over their heads and not having much wealth to fall back upon. This could have easily been set in Riverside, County, California with and be about first generation Hispanic homeowners.

I bought my first propertly in approximately 1991 and lost it six years later through foreclosure. I was a single mother at the time. I had bought a tonwhouse and my son and I lived there for those years while he was finishing elementary school and in middle school. Right after I bought it, the value dropped precipitously, but I hung on through my son's school years. It was only at the time he was set to enter high school that I made a big effort to "quantify my loss" and realized that I had nothing but bad prospects - couldn't rent it out for enough to cover the mortgage, and couldn't sell it either except through a short sale which wasn't as prevalent then. A non-judicial foreclosure became the easiest way to get out of an upside-down mortgage. I made this decision to get my son out of the LA Unified School District and into a better school district for his high school years. I've never regretted this decision, but yes, I paid a big price for better schools. Such is life - making a decisions that cost you.

So what? Bottom line - any of us can be "victims" either to our own avarice or a so-called predatory lender, but most often it's both. We want something for nothing and we forget that what goes up often can come down. My own real estate at the time said that prices couldn't go down (this is 1990-91 remember) because then we'd lose "real value" - ha ha. I lost $50K within 9 months of purchasing my townhouse. And it wasn't worth all that much to begin with.

Bottom line - it takes time to mount and climb the property ladder. It may take several generations. The people of Prince Georges County who have set down roots and continue to stay there are building something for the future, which is both in their families and their communities.

The negative tone to this story could, and should, just as easily been a positive one, quite frankly. For these families are working themselves out of poverty and into the middle class, no matter how long it takes; they should be congratulated - the writer of this piece should not be. Things are beginning to get better in many parts of the country. Not sure about PGC, but it wouldn't surprise me if it's better now than just a year ago. However, you note that since the writer wanted to make a negative, race-based argument, that information was omitted. Shame on you.

I couldnt agree more with this comment. This author describes how the housing bubble began and how it collapsed. Oddly enough it didnt have anything to do with Bush who the democrats insist is responsible for the crash. Were blacks the only people who got caught in this situation or did it spread evenly across home owners regardless of color?

I would echo ellistea's comment above. There's nothing specific to the black community in what happened in Prince George County that didn't happen to any other group of first-generation home-owners -- other than Prince George County is majority black.

However, in terms of ways to fix this, it would be interesting to see how, for instance, first-generation Asian-American home-owners fared in the housing bust compared to say, first generation white, Hispanic and black homeowners.

The reason is that Asians tend to be culturally much more conservative in their finances -- and that's something that would tend to preserve home-ownership through a bust. If that turns out to be true, then it offers a model for first generation home-owners of any ethnicity -- be conservative in what you purchase, don't overextend, etc.

I would absolutely agree with you. Both of you, ellistea and enplaned.
Frankly, I got ANGRY reading this article.
I do not now, nor have I ever considered myself racist. However, there are THINGS. We all know them. I remember them from as far back as I can remember. Lacking "Financial Conservatism" is a clue. Truths, that cannot be spoken, lest we be deemed lower than the lowest of the low.
This does not mean those things do not exist though.
I for one, am so very tired of the excuses. When Bill Clinton was president, he may have made it easier for families to purchase homes, but unfortunately it was done in a way that was NOT SUSTAINABLE. Lacking common sense. What did these people (white, black, any color) expect? Is there something about these people in particular that prevents them from PLANNING for the future? Is there something missing in anyones' brain, that they don't become suspicious when all of the sudden, the bank says that they can afford a house that costs much more than any house they had ever qualified for before?? You can only blame so much of it on someone else. Mostly, it's YOUR fault.
I too, would love to see more minorities brought into the equation more often. I am sick of this constant whining and blaming coming from primarily the blacks. They at times remind me of young kids who, just starting out, feel they should have the same assets their parents have. Ridiculous. Work good jobs many years, put away your money, then make your purchases. Being white did not mean it would take less time for me to get where I am. I'm still working, trying to get further. It's slow going, but it's worth it. If I was spending all my time complaining, I wouldn't be where I am today.

I bought my first house during the middle of the boom in 2002 and I looked at a number of new housing developments. One thing that scared me back then was the stupidity of the lenders and borrowers. A majority of the lenders were bundling the loans so all there. Cared about was closing. The borrowers borrowed as much as they were allowed with no understanding of its affordability . In year two, when the taxes and insurance came due many filled for bankruptcy and the house of cards began to collapse

The uncomfortable truth is that the we have an "artificial" black middle class (this holds for Hispanics and poor whites) that really had very little wealth. Government can use the welfare state to transfer income and benefits but these cultural traits have long been lost in the expansion of the war on poverty (the nanny state). The Black community once had these out of necessity. As Liberal, you all need to figure out what your welfare state went wrong. It too much of a coincidence that the black family began it long slide right when white liberals decided to "help" it.

Bill Clinton passed the Community Reinvestment Act that forced real estate brokers & mortgage brokers to lend to people who couldn't afford to repay the loans. Adding more demand to a limited supply of housing (coupled with reckless financing) caused housing costs to skyrocket & exacerbate the situation (a.k.a., the "housing bubble").

And when the housing bubble blew up (as it ultimately had to), the whole world got thrown into economic turmoil.

Yet, Americans still love Bill Clinton & the Dems. And George Bush still gets blamed for the mess.

I'm a little confused - I understand the drop in the value of the houses caused the drop in equity and because the county is mostly black this dispoportunately affects blacks in this case. I think this is the main point - still if the owner rides out the market they are still paying down the loan and within 30 years will own the home free and clear. To me having a place to live that I liked plus building up value was the goal in buying a home - someday I will have a few hundred thousand in equity. Assuming the property owner was able to afford the original mortgage - even at a variable rate the loan cost shouldn't have gone up. The article refers to the "stable government jobs". It is virtually impossible to lose a federal government job. Some - vey few - state and local jobs were cut (this is Maryland - no state jobs disappeared). So here's what I get out of this - The typical PG county resident (ok they are mostly black) has higher than average income - and if all they (mostly government workers) keep making their payments and don't borrow more they will have more equity than most americans by the time it is all said and done. This is a bad thing - What am I missing?

I strongly agree with PaulPA. I wouldn't care a minute if my house's current "value" was less than the loan balance. It's still the house we want, we know we can make the remaining payments, and the price is what I freely agreed to. In fact, I celebrated a few months ago, because my house's assessment went DOWN more than the average in my town, so I will pay lower taxes for the next five years. That is nothing but good.

I just can't believe the low net worth figures the author presents for black families. The families in PG County are numerous with two professional employees, many of them Federal workers, state and county, etc. The Federal retirement has a Thrift Savings Plan that allows stock investments. There simply must be a greater proportion of blacks who have significant IRAs.

Prior comments are making more and more sense to me. This could be a story as silly as the legendary bleeding heart headline in the old (liberal, then) New York Post: "Cold Wave Hits New York's Jews; Blacks Suffer Most." In fact, my wife's white assistant and her husband have abandoned their "underwater" house, and they are the most tragic and utterly unjust case we know of.

I agree with most of the comments here: Since the hardships described are true of all homeowners, the article gives the impression that black hardship is morally and inherently worse than white hardship.

General response to the comments above, if you read the article you can tell that, actually, conditions aren't the same for white homeowners. White homeowners might have had it bad individually, or certain areas had it especially bad, but as a population, whites tend to have more intergenerational wealth. We're talking here about foreclosures on what was really the first generation of black families able to build wealth in the country. Latinos also had it particularly bad, but the histories are different.

Ignorance is a deafening. Even worse, pride will keep people in that state. I didn't have to read through the entire article to understand your point. On the other hand, people choose stereotypes and biases over historical facts. How long before society realizes that every ill has long-lasting effects? We will all reap what we have sown, no matter what skin color.

It is 100% wrong to blame the housing market collapse on the Community Reinvestment Act. The CRA only applies to federally regulated banks. It is a requirement they have to meet to get their federal liscenses renewed. Such banks make only a tiny fraction of home loans, and because they are regulated, they are far more careful.
The vast majority of home loans, and specifically subprime loans were made by independent mortgage brokers like Countrywide. The CRA does not apply to mortgage brokers. Their motivation to make these crappy loans came from the fact that Wall Street had a huge demand for them, so they could bundle them into securities, get a bonding agency to slap a AAA rating on them, then resell them to unsuspecting dupes.

The reason Bush is to blame for this is because it started on his watch, and his administration did nothing to stop it, until the entire financial world was polluted with these toxic assets. But your neighborhood bank had nothing to do with that. Blaming the CRA is simply a right wing way of blaming the government, when in fact the housing collapse was 100% a free market creation. The government could have tried to stop it, but its owners on Wall Street were making too much money for any regulator to raise a finger to stop. Of course after they screwed the pooch, Wall Streeters had no problem forcing the government to bail them out.

This young woman clearly does not know enough about Prince George's County. Most of Prince George's County is not McMansions---most of it is older homes and communities that have existed for centuries. Also, whites have not totally left the county, and their areas are very affluent. The richest people in Prince George's County live in its rural tier on huge acres of land, a lot like Davidsonville in Anne Arundel County. These homes did not lose much value---but have actually gained since the recession. College Park, Greenbelt and Bowie hold their own, but areas between Central Avenue and Brandywine in the rural tier represent million dollar homes and historic properties, all custom built. Black and white families have held these properties for years. She also missed Prince George's old Gold Coast (Enterprise Road) and new Platinum Coast (gated community of Woodmore. In short, her knowledge of the county is so bad, this article, however well meaning, is embarrassing.